How a billionaire stock investor made his name at the worst possible time for markets

The 1970s was a demoralizing era if you were an investor in US
equities.

Media outlets were printing headlines proclaiming
the "Death
of Equities." Interest rates were so high investors
could earn 10% on US Treasuries.

It was in this unlikely atmosphere that the now billionaire
investor and founder of GAMCO Investing, Mario Gabelli, had an
idea.

It would become the basis of his legendary investing
philosophy.

"We came up with this idea that individuals would like to buy
businesses — companies would want to buy businesses," Gabelli
said during an interview with OneWire's
Skiddy von Stade.

"We did that in part out of a necessity to convince individuals,
companies, and pensions to invest in the stock market
again," Gabelli said.

Gabelli came up with the idea of looking at a company's private
market value. The aim was to figure out what price an individual
or business would be willing to buy a company, and what sort
of catalyst might help close the gap between the price at which a
company was trading and the projected private worth.

"Really it deals with, what is a company worth? If I was a
private equity firm, whether I am Henry Kravis or Schwarzman or
Carlyle or Cerberus, or whoever, what would they pay
and why, who are they and what are their assets, and what are
their returns?"

It worked. An investor who put in $10 million
into Gabelli's fund in 1978 would now have $2.2 billion, while
the same investment in the S&P 500 would have generated $645
million,ValueWalk
reported.